ACC 206 Week Assignment: Please Complete The Following 5 Exe

Acc 206 Week Assignmentplease Complete The Following 5 Exercises Below

Acc 206 Week Assignmentplease Complete The Following 5 Exercises Below

Answer the following questions:

- Why are noncash transactions, such as the exchange of common stock for a building for example, included on a statement of cash flows?

- How are these noncash transactions disclosed?

Classify each of the following transactions as arising from an operating (O), investing (I), financing (F), or noncash investing/financing (N) activity:

a. Received $80,000 from the sale of land.

b. Received $3,200 from cash sales.

c. Paid a $5,000 dividend.

d. Purchased $8,800 of merchandise for cash.

e. Received $100,000 from the issuance of common stock.

f. Paid $1,200 of interest on a note payable.

g. Acquired a new laser printer by paying $650.

h. Acquired a $400,000 building by signing a $400,000 mortgage note.

Evaluate the following statements as True or False, providing brief explanations for any false statements:

a. Both the direct and indirect methods will produce the same cash flow from operating activities.

b. Depreciation expense is added back to net income when the indirect method is used.

c. One advantage of the direct method over the indirect method is that larger cash flows from financing activities are reported.

d. The cash paid to suppliers is normally disclosed on the statement of cash flows when the indirect method is used.

e. The dollar change in the Merchandise Inventory account appears on the statement of cash flows only when the direct method is used.

Given the equipment transaction data, determine the cost and accumulated depreciation of equipment sold in 20X4, the sale price, and how this sale would appear on the statement of cash flows, prepared via the indirect method.

Review the year-end balance sheet and income statement data for Sign Graphics, Inc., along with additional activity details, and prepare:

- The operating activities section of the statement of cash flows using both the direct and indirect methods.

- The investing and financing activities sections.

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Paper For Above instruction

The statement of cash flows is an essential financial statement that provides information about the cash inflows and outflows of a company during a particular period. It plays a crucial role in helping stakeholders understand how a company manages its cash position, which is vital for assessing liquidity, solvency, and financial flexibility. One significant aspect of the cash flow statement is the inclusion of noncash transactions, such as exchanges of assets for stock or other securities, which, although not involving cash directly, reflect significant financial activities that impact the company's financial position.

Noncash transactions are included on the statement of cash flows through supplementary disclosures, typically in a separate schedule or notes to the financial statements. These disclosures ensure transparency and provide a complete picture of a company's financial dealings, even those that do not involve immediate cash flows. For example, issuing stock to acquire a building is a significant activity but does not generate cash; therefore, it is disclosed separately to inform users of the financial activity without misleading them into thinking cash was involved.

Classifying transactions into operating (O), investing (I), financing (F), or noncash (N) activities is necessary for preparing the statement of cash flows. Operating activities include primary revenue-generating activities, such as cash sales and payments for expenses and interest. Investing activities involve the acquisition and disposal of long-term assets, like land and equipment. Financing activities relate to borrowing, repaying debt, and raising capital through stock issuance. Noncash investing/financing activities involve asset exchanges or conversions that do not affect cash but are disclosed for completeness.

For example, the sale of land for $80,000 is an investing activity. Cash received from cash sales ($3,200) is an operating activity. Paying dividends ($5,000) is a financing activity. Purchasing merchandise for cash ($8,800) is operating. Issuing stock ($100,000) is financing. Paying interest ($1,200) is operating. Acquiring printer with cash ($650) is investing, while obtaining a building through a mortgage ($400,000) is a noncash financing activity, requiring separate disclosure.

The evaluation of the direct and indirect methods involves understanding their differences. Both methods ultimately produce the same net cash flow from operating activities but present the information differently. The direct method reports cash receipts and payments directly, providing clarity. The indirect method starts with net income and adjusts for noncash items and changes in working capital. While some argue that the direct method offers more transparent insights for users, the indirect method is more commonly used due to ease of preparation, especially given that net income is readily available from the income statement.

Depreciation expense is added back to net income in the indirect method because it is a noncash expense that reduces net income but does not affect cash flows. Conversely, the sale of equipment resulting in a loss (e.g., $9,000) affects cash flows via the proceeds from sale and is reflected explicitly in cash flow statements. The depreciation expense and loss on sale are integral in adjusting net income to reconcile to net cash provided by operating activities and accurately present cash flow from operational segments.

Using the equipment data, the equipment sold in 20X4 was purchased for $155,000 with accumulated depreciation of $66,000. The sale resulted in a loss of $9,000, implying the equipment was sold for $80,000. The sale appears on the cash flow statement as part of investing activities, with proceeds ($80,000) reported under cash inflows. When preparing the statement via the indirect method, it affects the net cash from operating activities by adjusting for the loss on sale, which is added back, and demonstrates how noncash losses are assimilated into cash flow calculations.

For Sign Graphics, Inc., analyzing the change in current assets and liabilities, along with net income and additional investing and financing cash flows, yields a comprehensive cash flow statement. The operating activities section reflects adjustments to net income based on changes in working capital, depreciation, gains/losses, and other noncash transactions. The investing activities section covers the purchase and sale of long-term assets, like land and investments, while the financing activities reflect issuances, borrowings, repayments, and dividend payments.

When detailing the cash flows for Sign Graphics, it is essential to consider all cash transactions, including investing in equipment and long-term investments, issuing stock, repaying debt, and dividend disbursement. Proper alignment of these activities under their respective sections ensures the cash flow statement provides a truthful financial portrait. The comprehensive analysis underscores the significance of cash flow analysis in assessing the company's liquidity, operational efficiency, and financial strategy execution, vital for stakeholders' decision-making.

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